Western Refining Announces First Quarter 2014 Results

Published 6:00 AM ET Tue, 6 May 2014
Globe Newswire

SHARES

EL PASO, Texas, May 6, 2014 (GLOBE NEWSWIRE) -- Western Refining, Inc. (NYSE:WNR) today reported first quarter 2014 net income attributable to Western, excluding special items, of $40.3 million, or $0.44 per diluted share. This compares to first quarter 2013 net income, excluding special items, of $98.8 million, or $0.94 per diluted share. Including special items, the Company recorded first quarter 2014 net income attributable to Western of $85.5 million, or $0.88 per diluted share, as compared to net income of $83.7 million, or $0.81 per diluted share for the first quarter of 2013. Special items in the first quarter of 2014 primarily consisted of a non-cash unrealized pre-tax hedging gain of $74.0 million. A reconciliation of reported earnings and description of special items can be found in the accompanying financial tables.

Western's financial results reflect the consolidation of financial results of both Western Refining Logistics, LP (NYSE:WNRL), a fee-based master limited partnership of which Western owns the general partner and approximately 65% of the limited partnership interests and Northern Tier Energy LP (NYSE:NTI), a variable distribution master limited partnership of which Western owns the general partner and approximately 39% of the limited partnership interests.

Commenting on the first quarter, Jeff Stevens, Western's President and Chief Executive Officer, said, "Western delivered another excellent quarter, both operationally and financially. We successfully completed one of the most extensive turnarounds ever at the El Paso refinery and I want to congratulate our employees and contractors for their commitment to safely completing this milestone event. Additionally, our investment in Northern Tier Energy helped us to achieve these strong financial results."

Stevens continued, "We further enhanced our crude oil gathering capabilities in the fast-growing Permian and San Juan Basins. With our direct pipeline access to cost-advantaged crude oils, we believe we will continue to benefit from the increased crude oil production in these regions."

During the first quarter, Western paid a dividend of $0.26 per share of common stock and in April, the Board of Directors authorized a $0.26 per share dividend for the second quarter.

Looking forward, Stevens said, "The second quarter is off to a strong start. Our refineries are running at capacity and the margin environment is strengthening as we move into the summer season. The WTI Midland/Cushing differential has widened during the quarter with April and May averaging over $8.80 per barrel and we are seeing stronger values for finished products in our regions. Overall, we are well positioned to continue to benefit from this margin environment and to invest in our business and return cash to our shareholders."

Conference Call Information

A conference call is scheduled for Tuesday, May 6, 2014, at 11:00 am EDT to discuss Western's financial results for the first quarter ended March 31, 2014. A slide presentation will be available for reference during the conference call. The call, press release and slide presentation can be accessed on the Investor Relations section on Western's website, www.wnr.com. The call can also be heard by dialing (866) 566-8590 or (702) 224-9819, passcode: 20875182. The audio replay will be available two hours after the end of the call through May 15, 2014, by dialing (800) 585-8367 or (404) 537-3406, passcode: 20875182.

Non-GAAP Financial Measures

In a number of places in the press release and related tables, we have excluded certain income and expense items from our non-GAAP financial measure and related disclosures. The excluded items are generally non-cash in nature such as unrealized net gains and losses from commodity hedging activities or losses on extinguishment of debt; however, other items that have a cash impacts, such as gains on disposal of assets and significant costs to exit an activity are also excluded. We believe it is useful for investors and financial analysts to understand our financial performance excluding such items so that they can see the operating trends underlying our business. Readers of this press release should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP.

About Western Refining

Western Refining, Inc. is an independent refining and marketing company headquartered in El Paso, Texas. The refining segment operates refineries in El Paso, and Gallup, New Mexico. The Wholesale segment includes a fleet of crude oil and finished product truck transports, and wholesale petroleum products operations in Arizona, California, Colorado, Georgia, Maryland, Nevada, New Mexico, Texas, and Virginia. The retail segment includes retail service stations and convenience stores in Arizona, Colorado, New Mexico, and Texas.

Western Refining, Inc. owns the general partner and approximately 65% of the limited partnership interest of Western Refining Logistics, LP (NYSE:WNRL). Western Refining, Inc. also owns the general partner and approximately 39% of the limited partnership interest in Northern Tier Energy LP (NYSE:NTI).

This press release contains forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein include statements about: our enhanced crude oil gathering capabilities; our ability to benefit from increased crude oil production in the Permian and San Juan Basins; the future margin environment; the future WTI Midland/Cushing differential; continued stronger values for finished products in our regions; our ability to continue to benefit from the current margin environment; and, our ability to invest in our business and to return cash to shareholders. These statements are subject to the general risks inherent in the Company's business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized, or otherwise materially affect our financial condition, results of operations, and cash flows. Additional information relating to the uncertainties affecting Western's business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are only as of the date made, and Western does not undertake any obligation to (and expressly disclaims any obligation to) update any forward looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Consolidated Financial Data

We report our operating results in five business segments: the refining group, the wholesale group, the retail group, WNRL and NTI.

Our refining segment operates two refineries in the Southwest owned by Western that process crude oil and other feedstocks primarily into gasoline, diesel fuel, jet fuel and asphalt. We market refined products to a diverse customer base including wholesale distributors and retail chains.

Our wholesale segment includes a fleet of crude oil and refined product truck transports and wholesale petroleum product operations in the Southwest region. The wholesale group also markets refined products in the Northeast and Mid-Atlantic regions. Wholesale receives its product supply from the refining group and third-party suppliers.

WNRL owns and operates terminal, storage and transportation assets and provides related services primarily to our refining group in the Southwest.

NTI owns and operates refining and transportation assets and operates retail convenience store assets and supports franchised retail convenience stores primarily in the Upper Great Plains region of the U.S.

The following tables set forth our unaudited summary historical financial and operating data for the periods indicated below:

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands, except per share data)

Statements of Operations Data

Net sales (1)

$3,725,143

$2,178,219

Operating costs and expenses:

Cost of products sold (exclusive of depreciation and amortization) (1)

(1) Excludes $1,058.2 million and $1,009.1 million of intercompany sales; $1,054.3 million and $1,007.0 million of intercompany cost of products sold; and $3.9 million and $2.1 million of intercompany direct operating expenses for the three months ended March 31, 2014 and 2013, respectively.

(2) Our computation of diluted earnings per share potentially includes our Convertible Senior Unsecured Notes and our restricted shares and share units. If determined to be dilutive to period earnings, these securities are included in the denominator of our diluted earnings per share calculation. For purposes of the diluted earnings per share calculation, we assumed issuance of 0.2 million restricted shares and share units and assumed issuance of 22.6 million shares related to the Convertible Senior Unsecured Notes for the three months ended March 31, 2014. We assumed issuance of 0.2 million restricted shares and share units and assumed issuance of 22.1 million shares related to the Convertible Senior Unsecured Notes for the three months ended March 31, 2013.

(3) Adjusted EBITDA represents earnings before interest expense and other financing costs, amortization of loan fees, provision for income taxes, depreciation, amortization, maintenance turnaround expense, and certain other non-cash income and expense items. However, Adjusted EBITDA is not a recognized measurement under United States generally accepted accounting principles ("GAAP"). Our management believes that the presentation of Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. In addition, our management believes that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of Adjusted EBITDA generally eliminates the effects of financings, income taxes, the accounting effects of significant turnaround activities (that many of our competitors capitalize and thereby exclude from their measures of EBITDA), and certain non-cash charges that are items that may vary for different companies for reasons unrelated to overall operating performance.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

Adjusted EBITDA, as we calculate it, differs from the NTI and WNRL Adjusted EBITDA calculations and may differ from the Adjusted EBITDA calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally. The following table reconciles net income to Adjusted EBITDA for the periods presented:

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands)

Net income attributable to Western Refining, Inc.

$85,546

$83,719

Net income attributed to non-controlling interest

42,151

—

Interest expense and other financing costs

26,860

17,988

Provision for income taxes

49,199

48,111

Amortization of loan fees

2,097

1,604

Depreciation and amortization

46,410

24,332

Maintenance turnaround expense

46,446

43,168

Loss on disposal of assets, net

886

—

Loss on extinguishment of debt

8

22,047

Unrealized (gain) loss on commodity hedging transactions

(73,972)

1,723

Adjusted EBITDA

$225,631

$242,692

EBITDA by Reporting Entity

Western Adjusted EBITDA

$123,151

$242,692

WNRL EBITDA

14,650

—

NTI Adjusted EBITDA

87,830

—

Adjusted EBITDA

$225,631

$242,692

Three Months Ended

March 31,

2014

Western

WNRL

NTI

(Unaudited)

(In thousands)

Net income attributable to Western Refining, Inc.

$54,205

$7,144

$24,197

Net income attributed to non-controlling interest

—

3,789

38,362

Interest expense and other financing costs

20,503

225

6,132

Provision for income taxes

49,080

119

—

Amortization of loan fees

1,968

129

—

Depreciation and amortization

24,181

3,244

18,985

Maintenance turnaround expense

46,446

—

—

Gain (loss) on disposal of assets, net

898

—

(12)

Loss on extinguishment of debt

8

—

—

Unrealized (gain) loss on commodity hedging transactions

(74,138)

—

166

Adjusted EBITDA

$123,151

$14,650

$87,830

Consolidating Financial Data

The following tables set forth our consolidating historical financial data for the periods presented below.

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands)

Operating Income (Loss)

Refining

$135,736

$181,883

Wholesale

10,507

8,759

Retail

(2,103)

(2,154)

Corporate and other

(18,689)

(15,367)

Total Western

$125,451

$173,121

WNRL

11,403

—

NTI

76,729

—

Operating income

$213,583

$173,121

Depreciation and Amortization

Total Western

$24,181

$24,332

WNRL

3,244

—

NTI

18,985

—

Depreciation and amortization expense

$46,410

$24,332

Capital Expenditures

Total Western

$37,513

$65,625

WNRL

5,904

—

NTI

7,181

—

Capital expenditures

$50,598

$65,625

Balance Sheet Data (at end of period)

Cash and cash equivalents

Total Western

$219,283

$248,365

WNRL

82,951

—

NTI

129,403

—

Cash and cash equivalents

$431,637

$248,365

Total debt

Total Western

$1,110,605

$713,639

WNRL

—

—

NTI

278,247

—

Total debt

$1,388,852

$713,639

Total debt to capitalization ratio (1)

115.7%

77.7%

Total working capital

Total Western

$490,561

$594,069

WNRL

82,738

—

NTI

147,242

—

Total working capital

$720,541

$594,069

(1) Calculation of total debt to capitalization ratio for the three months ended March 31, 2014 excludes NTI debt of $278.2 million and total equity of $2,658.9 million attributable to non-controlling interest.

Refining Segment

El Paso and Gallup Refineries and Related Operations

Three Months Ended

March 31,

2014

2013

(In thousands, except per barrel data)

Statement of Operations Data (Unaudited):

Net sales (including intersegment sales) (1)

$2,041,199

$1,776,086

Operating costs and expenses:

Cost of products sold (exclusive of depreciation and amortization) (2)

The following tables set forth our summary refining throughput and production data for the periods and refineries presented:

El Paso and Gallup Refineries

Three Months Ended

March 31,

2014

2013

Key Operating Statistics

Refinery product yields (bpd):

Gasoline

66,918

67,613

Diesel and jet fuel

56,102

45,040

Residuum

4,349

4,083

Other

7,631

3,976

Total refinery production (bpd)

135,000

120,712

Refinery throughput (bpd):

Sweet crude oil

113,443

100,123

Sour crude oil

19,106

21,368

Other feedstocks and blendstocks

4,937

882

Total refinery throughput (bpd) (4)

137,486

122,373

El Paso Refinery

Three Months Ended

March 31,

2014

2013

Key Operating Statistics

Refinery product yields (bpd):

Gasoline

49,365

51,522

Diesel and jet fuel

47,666

37,948

Residuum

4,349

4,083

Other

5,820

3,235

Total refinery production (bpd)

107,200

96,788

Refinery throughput (bpd):

Sweet crude oil

87,863

77,068

Sour crude oil

19,106

21,368

Other feedstocks and blendstocks

2,171

(490)

Total refinery throughput (bpd) (4)

109,140

97,946

Total sales volume (bpd) (3)

127,496

128,494

Per barrel of throughput:

Refinery gross margin (2) (5)

$15.78

$34.57

Refinery gross margin excluding fees paid to WNRL (2) (7)

17.96

34.57

Direct operating expenses (6)

4.89

6.10

Direct operating expenses including WNRL expenses (6) (8)

5.50

6.10

Gallup Refinery

Three Months Ended

March 31,

2014

2013

Key Operating Statistics

Refinery product yields (bpd):

Gasoline

17,553

16,091

Diesel and jet fuel

8,436

7,092

Other

1,811

741

Total refinery production (bpd)

27,800

23,924

Refinery throughput (bpd):

Sweet crude oil

25,580

23,055

Other feedstocks and blendstocks

2,766

1,372

Total refinery throughput (bpd) (4)

28,346

24,427

Total sales volume (bpd) (3)

33,198

32,139

Per barrel of throughput:

Refinery gross margin (2) (5)

$13.56

$26.77

Refinery gross margin excluding fees paid to WNRL (2) (7)

17.59

26.77

Direct operating expenses (6)

8.44

10.07

Direct operating expenses including WNRL expenses (6) (8)

9.16

10.07

(1) Refining net sales for the three months ended March 31, 2014 include $354.4 million representing 40,056 bpd in crude oil sales to third-parties without comparable activity in 2013. The majority of the crude oil sales resulted from the purchase of barrels in excess of what was required for production purposes in the El Paso and Gallup refineries.

(2) Cost of products sold for the combined refining segment includes the net realized and net non-cash unrealized hedging activity shown in the table below. The hedging gains and losses are also included in the combined gross profit and refinery gross margin but are not included in those measures for the individual refineries.

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands)

Realized hedging gain (loss), net

$16,484

$(28,819)

Unrealized hedging gain (loss), net

74,138

(1,723)

Total hedging gain (loss), net

$90,622

$(30,542)

(3) Sales volume includes sales of refined products sourced primarily from our refinery production as well as refined products purchased from third parties. We purchase additional refined products from third parties to supplement supply to our customers. These products are similar to the products that we currently manufacture and represented 13.1% of our total consolidated sales volumes for the three months ended March 31, 2014. The majority of the purchased refined products are distributed through our wholesale refined product sales activities in the Mid-Atlantic region where we satisfy our refined product customer sales requirements through a third-party supply agreement.

(4) Total refinery throughput includes crude oil and other feedstocks and blendstocks.

(5) Refinery gross margin is a per barrel measurement calculated by dividing the difference between net sales and cost of products sold by our refineries' total throughput volumes for the respective periods presented. Net realized and net non-cash unrealized economic hedging gains and losses included in the combined refining segment gross margin are not allocated to the individual refineries. Cost of products sold does not include any depreciation or amortization. Refinery gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our refinery performance as a general indication of the amount above our cost of products that we are able to sell refined products. Each of the components used in this calculation (net sales and cost of products sold) can be reconciled directly to our statement of operations. Our calculation of refinery gross margin may differ from similar calculations of other companies in our industry, thereby limiting its usefulness as a comparative measure.

The following table reconciles combined gross profit for all refineries to combined gross margin for all refineries for the periods presented:

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands, except per barrel data)

Net sales (including intersegment sales)

$2,041,199

$1,776,086

Cost of products sold (exclusive of depreciation and amortization)

1,759,198

1,442,152

Depreciation and amortization

19,468

20,254

Gross profit

262,533

313,680

Plus depreciation and amortization

19,468

20,254

Refinery gross margin

$282,001

$333,934

Refinery gross margin per refinery throughput barrel

$22.79

$30.32

Gross profit per refinery throughput barrel

$21.22

$28.48

(6) Refinery direct operating expenses per throughput barrel is calculated by dividing direct operating expenses by total throughput volumes for the respective periods presented. Direct operating expenses do not include any depreciation or amortization.

(7) For the three months ended March 31, 2014, cost of products sold for the combined refining segment includes $21.4 million and $10.3 million from the El Paso and Gallup refineries, respectively, with no comparable activity in prior periods. Concurrent with the closing of its initial public offering on October 16, 2013, WNRL entered into fee-based commercial and service agreements with Western under which it operates assets contributed by Western for the purpose of generating fee-based revenues. Under these agreements, WNRL provides various pipeline, gathering, transportation, terminalling and storage services to Western and Western pays fees to WNRL based on minimum monthly throughput volumes of crude oil and refined and other products, and reserved storage capacity. Most of WNRL's assets are integral to the operations of Western's El Paso and Gallup refineries.

(8) Direct operating expenses including WNRL expenses per throughput barrel for the three months ended March 31, 2014 includes $6.0 million and $1.8 million of WNRL directing operating expenses associated with El Paso and Gallup refinery operations, respectively.

(1) Wholesale fuel margin per gallon is a function of the difference between wholesale fuel sales and cost of fuel sales divided by the number of total gallons sold less gallons sold to our retail segment. Fuel margin per gallon is a measure frequently used in the petroleum products wholesale industry to measure operating results related to fuel sales.

(2) Lubricant margin is a measurement calculated by dividing the difference between lubricant sales and lubricant cost of products sold by lubricant sales. Lubricant margin is a measure frequently used in the petroleum products wholesale industry to measure operating results related to lubricant sales.

(1) Fuel margin per gallon is a measurement calculated by dividing the difference between fuel sales and cost of fuel sales for our retail segment by the number of gallons sold. Fuel margin per gallon is a measure frequently used in the convenience store industry to measure operating results related to fuel sales.

(2) Merchandise margin is a measurement calculated by dividing the difference between merchandise sales and merchandise cost of products sold by merchandise sales. Merchandise margin is a measure frequently used in the convenience store industry to measure operating results related to merchandise sales.

WNRL

The following table sets forth the summary operating results for WNRL. There is no comparable activity prior to WNRL's commencement of operations on October 16, 2013.

Three Months Ended

March 31,

2014

(In thousands)

(Unaudited)

Revenues:

Affiliate

$32,056

Third-party

701

Total revenues

32,757

Operating costs and expenses:

Operating and maintenance expenses

16,135

General and administrative expenses

1,975

Depreciation and amortization

3,244

Total operating costs and expenses

21,354

Operating income

$11,403

Other income (expense):

Interest income

—

Interest expense and other financing costs

(225)

Amortization of loan fees

(129)

Loss on extinguishment of debt

—

Other, net

3

Income before income taxes

$11,052

Income attributed to non-controlling interest

$3,789

Key Operating Statistics

Pipeline and gathering (bpd):

Mainline movements:

Permian/Delaware Basin system

15,343

Four Corners system (1)

41,015

Gathering (truck offloading):

Permian/Delaware Basin system

22,164

Four Corners system

11,400

Terminalling, transportation and storage (bpd):

Shipments into and out of storage (includes asphalt)

340,588

NTI

The following table sets forth the summary operating results for NTI. We acquired the general partner and a 38.7% limited partner interest in NTI on November 12, 2013. There is no comparable activity in prior periods.

We present certain additional financial measures below and elsewhere in this press release that are non-GAAP measures within the meaning of Regulation G under the Securities Exchange Act of 1934.

We present these non-GAAP measures to provide investors with additional information to analyze our performance from period to period. We believe it is useful for investors to understand our financial performance excluding these special items so that investors can see the operating trends underlying our business. Investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that we report in accordance with GAAP. These non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies.

Three Months Ended

March 31,

2014

2013

(Unaudited)

(In thousands, except per share data)

Reported diluted earnings per share

$0.88

$0.81

Income before income taxes

$176,896

$131,830

Unrealized loss (gain) on commodity hedging transactions

(73,972)

1,723

Loss on disposal of assets, net

886

—

NTI severance costs

9,399

—

Loss on extinguishment of debt

8

22,047

Earnings before income taxes excluding special items

113,217

155,600

Recomputed income taxes after special items (1)

(24,888)

(56,778)

Net income excluding special items

88,329

98,822

Net income attributed to non-controlling interest

48,015

—

Net income attributable to Western after special items

$40,314

$98,822

Diluted earnings per share excluding special items

$0.44

$0.94

(1) We recompute income taxes after deducting earnings attributed to non-controlling interest.